Questions On Alternative Trading Practices And Competing Security Markets Essay

912 WordsDec 29, 20164 Pages
Q.5: EXPLAIN THE DIFFERENT TYPES OF ORDERS. ANS.: INTRODUCTION: Before comparing alternative trading practices and competing security markets, it is helpful to begin with an overview of the types of trades an investor might wish to have executed in these markets. There are several types of orders that investors can place with their brokers. The most common types are market and limit orders, although stop and stop limit orders can also be used. There are other special types of orders that are rarely used: TYPES OF ORDERS: 1. MARKET ORDERS: Market orders are buying or selling orders that are to be executed immediately at current market prices. For example, our investor might call her broker and ask for the market price of IBM. The broker might report back that the best bid price is $90 and the best ask price is $90.05, meaning that the investor would need to pay $90.05 to purchase a share, and could receive $90 a share if she wished to sell some of her own holdings of IBM. The bid-ask spread in this case is $.05. So an order to buy 100 shares “at market” would result in purchase at $90.05, and an order to “sell market” would be executed at $90. Market order, wherein the broker is instructed to buy or sell a stated number of shares immediately. The broker is obligated to act on a best-efforts basis to get the best possible price (as low as possible for a purchase order, as high as possible for a sell order) when the order is placed. An investor placing a market order can
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